Question

If Wolves Entertainment Company is acting in the best interests of stockholders (following the primary goal of the firm), which of the following is the optimal (best) capital budget for the firm? Question 8 options: Debt = 80%, Equity = 20%, EPS = $3.28, Stock price = $29.70, Cost of Debt = 5.8%, , Capital Budget $ 16 Million Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%, Capital Budget $ 12 Million Debt = 40%, Equity = 60%, EPS = $2.95, Stock price = $26.50, Cost of Debt = 3.0%, Capital Budget $ 8 Million Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%, , Capital Budget $ 14 Million Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $28.90, Cost of Debt = 3.5%, Capital Budget $ 10 Million

Answer 1

Answer:

Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%, , Capital Budget $ 14 Million

Explanation:

The goal of the manager is to create the most welalth in favor of the stockholerd that is to provide the best earning per share for them.

Increasing the firm earnings per share is ensuring the creation of value to the stockholders. While the different structure have different risk the stockholder will manage the risk by eling the share of what they consider unbearable risk and purchase form company's they consider acceptable. So maximizing the Earning per share even at cost of icnreasing the risk the way to go from the managers.